Business Irish

Thursday 13 December 2018

AIB 'outmuscling' alternative lenders in bid for market share

Bernard Byrne, chief executive of AIB – the State-backed bank is out-muscling alternative lenders, in a host of deals. Photo: INM
Bernard Byrne, chief executive of AIB – the State-backed bank is out-muscling alternative lenders, in a host of deals. Photo: INM

Gretchen Friemann

AIB is spearheading a fightback against non-bank lenders, offering more flexible loans to business and property borrowers as it battles to win back market share lost during the crisis and capitalise on stronger economic growth.

According to multiple sources, the State-backed bank is out-muscling alternative lenders, in a host of deals by pushing up loan-to-value ratios and then offering a higher blended rate that excludes the need for mezzanine or bridging financing.

A broker who sources funds for small businesses and property investors said the more flexible terms are offset by higher rates - in the order of 7-8pc. While all commercial and corporate rates are tailored to each deal, these higher borrowing charges are more typically on offer from the non-bank lenders

But the increasingly cut-throat competition has prompted predictions of a contraction in the non-bank market as smaller players struggle to expand their market share.

While AIB is widely viewed as the most aggressive rival to the alternative lenders, it is also likely to provide a valuable pipeline of business for the non-bank sector with the imminent sale of a near €3.7bn portfolio of soured commercial loans.

Project Redwood, as the portfolio is known, is destined to fall into the hands of a global distressed debt fund - Lone Star, Cerberus or Goldman Sachs are all preparing final bids for the asset - enabling alternative lenders to then prise off lucrative a string of re-financing deals post-sale.

One industry source pointed out the sale is likely to provide a €1bn pipeline of new lending opportunities to the industry next year as the new owner of Project Redwood rapidly restructures the book in an effort to boost profits.

The portfolio acquisitions of the so-called vulture funds have provided the non-bank lenders with a fresh supply of refinancing deals for years.

But in the scramble for suitable deals, some are questioning whether the Irish market has sufficient depth to cater for this plethora of players that have leapt into the sector in the aftermath of the crash.

Last year alternative lender BlueBay opted to exit Ireland. Instead of raising a second fund to a €450m debt vehicle launched in 2013 and aimed at the credit-starved SME sector, the firm has decided to manage down its existing portfolio.

Executives from the State-backed BlueBay Ireland Corporate Credit I enterprise have set up as a new alternative lender, DunPort Capital, and are understood to have attracted backers behind the initial BlueBay vehicle.

But the market dynamics are shifting. Privately, smaller firms are describing the conditions as tough and point to the increasing challenges in landing deals as competition from rival players and the banks intensify.

Corporate brokers charged with securing competitively priced funds for clients claim the banks' greater appetite often wipes out the need for borrowers to take mezzanine debt from an alternative lender.

One source claimed AIB offered clients a blended rate and upped the loan-to-value ratio to fend off rival pitches from privately-backed lenders.

He said borrowers are stumping up greater equity in an effort to land more favourable terms from the banks.

There is no suggestion banks are breaching strict lending guidelines in the pursuit of credit growth.

Instead the greater hunger, in AIB's case, is viewed as reflective of tough lending targets set at the time of the initial public offering last summer,

Others claim the banks' efforts to claw back some of the market share lost in the crash is likely to confine the non-bank lenders to a cottage industry with a handful of established, well-backed firms continuing to dominate a niche sector.

Non-bank lenders surged into the market in the midst of the crash when the pillar banks were forced to repair balance sheets burdened of soured debts.

Post-crisis legislation forced traditional lenders to have larger amounts of loss-absorbing capital and more resilient liquidity backstops, which in turn weighed on banks' loan book growth.

This retreat prompted a rush by non-bank lenders to fill the market gap with higher priced loans that included mezzanine and bridging financing.

Irish Independent

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